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Why Southern Company Stock Fell 14.3% in February Despite a Strong 2020 Outlook

By Neha Chamaria - Mar 9, 2020 at 1:58PM

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The utility stock's fall doesn't make much sense.

What happened

Southern Company (SO 0.07%) shares tumbled 14.3% in February, according to data provided by S&P Global Market Intelligence. The utility stock kicked off the year on a solid note before a quarterly earnings report on Feb. 20 that missed analysts' estimates  -- and the broader market sell-off that followed -- halted the stock's rise.

So what

Southern reported a 7.9%  decline in revenue for the fourth quarter. Part of the decline was due to dispositions, including that of Gulf Power, a company Southern sold off to NextEra Energy in January 2019; the sales from that were included in Q4 2018 numbers. A hefty $2.6 billion gain on the sale of Gulf Power drove Southern's full-year 2019 net income to $4.7 billion. On an adjusted basis, though, Southern's 2019 net income rose around 4%. Analysts were expecting stronger top- and bottom-line growth from the company.

A man shocked to see a falling stock price graph.

Image source: Getty Images.

There were a couple of positive developments in Q4. Southern reportedly brought its main control room at Georgia Power's Vogtle Unit 3 online, as targeted. Vogtle is a major nuclear project that Southern's been striving to build ever since its contractor Westinghouse went bankrupt in 2017.

During the same quarter, Southern sold off its 5% stake in the Atlantic Coast Pipeline project to Dominion Energy, a major natural gas pipeline project that's run into severe cost and time overruns, hurting every company involved in the project. During Southern Company's Q4 earnings call, (transcript available here), management explained how a 5% stake in an asset wouldn't have "a meaningful impact on Southern's prospective growth" and that the sale helped Southern simplify its business. 

Now what

Southern shares are falling further with the market crash. The company's Q4 operational performance and guidance for 2020, however, shouldn't really worry investors. Southern expects adjusted earnings to be $3.10 to $3.22 per share this year, compared with 2019 earnings of $3.11. For the first quarter of 2020, it expects to earn $0.72 per share versus $0.70 earned in the comparable period in 2019.

Management affirmed its long-term earnings-per-share (EPS) growth target of 4% to 6% and planned investment of $40 billion between 2020 and 2024. The EPS goal looks achievable given that 90% of Southern's earnings over the next five years should come from regulated entities. It's just the broader market meltdown that's put the stock under pressure. 

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Stocks Mentioned

The Southern Company Stock Quote
The Southern Company
SO
$70.67 (0.07%) $0.05
NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
NEE
$76.00 (-0.58%) $0.44
Dominion Resources, Inc. Stock Quote
Dominion Resources, Inc.
D
$79.02 (0.62%) $0.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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